In all likelihood, an independent Scotland would be forced into swingeing cuts
in public spending

The Westminster parties have all rejected the idea of a currency union with an independent Scotland. This is not a fit of pique or a bargaining ploy. The eurozone countries have spent a decade and a half learning that in order to operate a successful monetary union you must also have banking, fiscal and political unions. They are now scrabbling around to put the other unions in place in order to preserve the monetary union.

Meanwhile, Alex Salmond proposes to discard these other unions which are currently in place in the United Kingdom but to keep the monetary union. This would potentially land the rest of us with a huge bill for bailing out an imprudent Scottish banking system and/or a fiscally incontinent Scottish government. The only way that Scotland could be allowed to continue with monetary union would be if its fiscal, monetary, banking and regulatory policies were set in London; in other words, if it wasn’t really independent at all.

Using the pound unilaterally – so-called sterlingisation – is an option, but it would be an extremely costly one. Without a lender of last resort, an independent Scotland would have to make its financial system ultra-secure. It would have to impose tough reserve requirements on banks and give them only limited access to government support. To make it possible to provide substantial support in times of crisis, the Scottish government would need to build up big reserves by running sustained budget surpluses.

The roll-call of countries that use another’s currency does not exactly inspire confidence: Panama, El Salvador, Ecuador, Kosovo and Montenegro. They have taken this course because they were in such a complete mess that they had little alternative.

Hong Kong is different. It does not use another country’s currency but rather ties its own to the US dollar. This works well because Hong Kong has huge reserves built up over decades of running surpluses, by keeping the scope of government to a minimum. Scotland could not be Hong Kong. Admittedly, it could be Montenegro. But why would it want to?

Last week saw the view surfacing that Scotland had nothing to fear from not having a lender of last resort because monetary systems don’t need one anyway. It might take a few banking collapses and major bank runs to establish this, so the theory goes, but eventually Scottish banks would learn to be more prudent and in the long run that would be good for Scotland. Well, after you! From what we heard last week, large numbers of financial businesses and their customers have decided that they would not want to take part in this testing of Austrian monetary theory and have voted, or are planning to vote, with their feet.

Alex Salmond used to make frequent reference to the Irish experience. He claimed that Scotland could be at the centre of an “arc of prosperity” stretching across Ireland and Iceland. After the financial collapse that engulfed these countries we don’t hear much about that now.

But the Irish experience is interesting in several ways. After independence in 1922, it took decades for Ireland to become successful, substantially helped by membership of the EU, not just in terms of access to markets but also through huge net subsidies. By contrast, it is far from certain that Scotland would be granted EU membership. But, if it was, it would be a net contributor to EU funds as it has a much higher income level than Ireland had.

Moreover, faced with severe challenges in the 1980s, Ireland turned itself into a low spending and low tax economy. The reaction to the financial crisis has been to impose fiscal stringency on a scale that makes the British equivalent look like a kids’ tea party.

If Alex Salmond were to follow the Irish example on fiscal policy, how could he square this with the vision of Eldorado that he has been dangling before Scottish voters, including big increases in NHS funding? In all likelihood, an independent Scotland would be forced into swingeing cuts in public spending.

Furthermore, for the first five decades of its independence, Ireland underwent substantial net emigration. If Scotland did relatively badly, then it could expect to experience the same thing. With poor demographics, this would be a heavy blow to the economy and would substantially worsen the long-term fiscal position.

You will have noticed that I am not entering the debate about how much oil there is, how much it is worth and to whom it properly belongs. Nor am I going to debate the extent of the UK’s fiscal subsidy to Scotland. Actually, I do not believe that the fate of nations, and certainly not the fate of great political unions like ours, should be decided on such matters.

What really counts is togetherness. Why don’t the arguments against British membership of the EU also count against Scottish membership of the UK? The answer is that to some extent they do. But everything depends upon the specifics of the Union, the nature of its institutions, how well it works and the depth of fellow feeling between its members. It is about who we think of as “us” and who we think of as “them”.

The nations of the United Kingdom have fought, suffered and triumphed together in three major wars and umpteen smaller ones, and we have a shared history, shared values and a common language. How many barrels of oil is this worth? It is priceless.

But it does have a knock-on effect into economics. Economically, the UK has worked pretty well because of the high quality of its institutions, backed up by the fellow feeling between its citizens. During the financial crisis you hardly heard any English voice complaining that they, as UK taxpayers, were being obliged to bail out two large Scottish banks.

If the Scots decide that their fellow feeling with other citizens of the UK has faded, or is not worth that much, then so be it. There is nothing that economists can say against that. But it really would be tragic if Scots made this momentous choice not realising the costs and dangers, and believing in the idea that, as a result of independence, riches will descend on them like manna from heaven. Arc of Prosperity? More like a Vortex of Chaos.

Roger Bootle is managing director of Capital Economics. His latest book, “The Trouble with Europe”, has just been published by Nicholas Brealey Publishing.